Pease explain me how to get the answer? Hickory Inc is facing a problem with the

Question

Pease explain me how to get the answer?

Hickory Inc is facing a problem with their 4th quarter absorption costing net operating income on December 25. The data so far is as follows: Hickory has had a policy of having zero inventories at the end of each quarter. No further sales are possible during the year and all the units produced so far have been sold. The CEO is placing to produce items for inventory in the last week of December to meet the net operating income target. How many units (nearest whole number) need to be produced for inventory to meet the net operating income target if the sales commission rate is left unchanged? 2381 units 3846 units 4167 units 4545 units None of the above.

Explanation / Answer

Current Operating Income:

= Sales - Variable COGS - Fixed OH - Fixed S&A - Sales Commission

= $25000000 - 10000000 - 12000000 - 1000000 - 4%*25000000

= $1000000

Required Net Operating Income = $2000000

Balance NOI to be met out of additional units produced = $2000000 - $1000000 = $1000000

Additional Units produced would be instock and valued at Variable COGS + Variable Selling Expenses

i.e. $200 + 4%*500 = $220

Units Required = $1000000 / 220 = 4545

#Fixed cost are not included in valuation of inventory since targeted units have already been produced an dsuch cost will not change on production of additional units.

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